The Npl market is improving, even if Italy continues to be one of the most exposed countries in Europe. But above all, a real business has been created around impaired loans, complete with specialized operators and thousands of jobs created. This is what emerged from the Npl Market research, carried out by Banca IFIS's Market Watch and presented during the eighth edition of theNpl Meeting organized by the Venetian bank at the Venice Lido. The title of this appointment, the first with the new CEO Luciano Colombini, is precisely "Run the industry": for the first time in fact it was quantified the impact of the NPL industry on the economic system, an industry that is growing at double digits and which now sees 49 specialized institutes in the field, including Banca IFIS itself but also other players such as Intrum, Prelios, Credito Fondiario, DoValue and Cerved or Hoist Finance Italy, to name a few.
These operators deal with a total business of 330 billion euros, between 246 billion gross bad loans and 84 billion UTPs (unlikely-to-pay, i.e. loans to still existing companies, to be brought back to performing status ) gross, both estimated in the second quarter by Banca IFIS and inclusive of transactions carried out from 2015 to August 2019, and of receivables already recovered. To do this, the players involved employ 5.700 people and have a combined turnover of 1,1 billion euros (+15% year on year). On the other hand, there are 984 credit collection agencies throughout the country (of which 852 associated with Unirec): they have a turnover of almost one billion (+14%) and employ another 7.600 people. The recovery rate is 3% on average per year, with however a peak of 7,8% in the first year in which the credit ends up in the portfolio. Between the first and third year, the success rate in the collection drops to 2%, only to then go back up after the third year.
As for the general situation of non-performing loans and the state of health of Italian banks, the Banca IFIS report paints a mixed picture. On the one hand, the NPE, or Non Performing Exposure (the exposure to bad loans) of Italian banks has halved since 2015, when in the last quarter it had reached a peak (counting "bad loans" and UTPs) of 341 billion , with an Npe Ratio of 17%, behind only those of Greece (47% in 2015) and Portugal and Ireland (both 19% four years ago). In the last four years, banks have freed themselves of 173 billion of non-performing loans (-53 billion UTPs), of which 14 billion in 2018. The percentage of non-performing loans out of the total has therefore dropped to 8% in Italy: only Germany and Ireland have managed to reduce a higher percentage of NPLs, but we still lag behind the EU average of 3% and Ireland itself, which has meanwhile fallen to 5%. Germany now has 1% exposure, France 3%.
Finally, as regards the pace of deterioration of performing loans, according to Banca IFIS analysis this returns to pre-crisis levels, but there is not too much to claim victory given that the transition from Utp to NPL, and that is from the so-called substandard to real non-performing loans remains quite high. In 2013, 4,5% of performing loans changed to non-performing (+71 billion euros), while in 2019 this change affected only 1,3% of bank loans (18 billion new non-performing generated ). However, this year there were also 17 billion UTPs that became "bad loans".
“The non-performing loans – commented the CEO of Banca Luciano Colombini – that remained on the balance sheets of Italian banks dropped to 164 billion: but of those sold, only 11 billion has been recovered according to estimates. This means that the stock remains above 300 billion and is destined to increase, given that the country's economic situation is not very brilliant. In fact, if the recovery of modest credits, numerous but of small value, proceeds well, selling a property is very complicated unless it is in Rome or Milan. This situation is a ball and chain for the system and affects the way banks operate in disbursing credit: credit to SMEs and small VAT numbers is at a standstill, and by now the tick of the ECB's interest rate policy is also running out”.
Colombini opened the work of the Npl Meeting for the first time, after his appointment to the top which took place less than a year ago: "It is an attendance record edition", he was keen to recall as he spoke on the stage of the Palazzo del Cinema on the Venice Lido, also announcing that the new strategic plan of IFIS, which will be unveiled in a few weeks, will still envisage “a two-track activity: the traditional bank, with a focus on factoring, and the management of NPLs”. The Npl market, according to Colombini, sees four protagonists in the field: banks, debtors, servicers and investors.
“Everyone is adapting to the new context, which for banks, in compliance with the new rules of the European supervisory institutions, means above all more prudence in the granting of loans. The role of the bank is also changing culturally: previously debt collection was entrusted to secondary resources, now, however, the institutes are allocating the best resources to this activity. It's a good thing that debt collection is entrusted to third parties, because it allows you to recover more, but culturally, the message that a bank disburses money and doesn't worry about recovering it shouldn't pass on”.
As far as debtors are concerned, according to the CEO of Banca IFIS "they must continue on the path of transparency, be quicker to show the first signs of crisis, be ready to negotiate agreements in a timely and proactive manner, bearing in mind that a company it is a social good”. Servicers, on the other hand, must equip themselves to choose the best recovery strategy: "We need to make up for a certain inertia that traditional banks have in dealing with corporate crises", Colombini believes. Finally, investors: “Non-performing loans will continue to offer interesting returns in the medium term: their price is expected to be stable or moderately increasing. In 2019, secured prices are expected to remain stable at 33%, while unsecured prices have risen from 6 to 8-9%, but the quality of the products is much better in terms of guarantees and documentation".
